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AT&T Corp. has agreed to purchase a longtime partner, Wi-Fi provider Wayport Inc., for $275 million in cash. The deal will extend AT&T's reach considerably and provide a good return for Wayport's venture backers at a time when decent exits are increasingly rare.

"We are thrilled, because this makes perfect sense both for us and the acquirer," said Kate Mitchell, managing director of Scale Venture Partners, which participated in a $70 million fourth funding round for Wayport in 2000.

Mitchell - who invested in Wayport from her firm's $500 million Scale Venture Partners I fund in 2000 - said the acquisition was the best exit that fund saw in 2008.

Launched in the late 1990s, Wayport had raised more than $130 million from investors since 1998, Mitchell said.

Jackie Kimzey, a general partner at Sevin Rosen Funds who served on Wayport's board for nine years, called the deal "a really good exit."

"[This was the] best exit since our XenSource exit a year ago," he said, referring to the sale of virtualization software maker XenSource Inc. to application-delivery company Citrix Systems Inc. for $500 million in cash and stock.

Sevin Rosen participated in Wayport's first funding round in 1998, as well as several subsequent rounds, according to VentureWire records.

Kimzey and Mitchell both declined to disclose investment returns or say how much their firms had invested in Wayport.

For investors, the deal is worth closer to $300 million, Kimzey said, because Wayport has been profitable for at least two years, and much of the profits have been distributed to shareholders.

Other investors include Bank of America, GC Technology Fund, Invesco Private Capital, Lucent Venture Partners, New Enterprise Associates, Norwest Venture Partners, Star Ventures and Trellis Management.

Invesco declined to comment and New Enterprise Associates couldn't immediately be reached for comment. Those two firms, along with Scale and Sevin Rosen, are listed on Wayport's Web site as main investors.

The Austin, Texas-based company, which has nearly 400 employees, provides wireless and wired Internet access to hotels, fast-food chains, health clubs and coffee shops.

The acquisition will put 20,000 Wi-Fi "hot spots" under AT&T's control, and will bring connectivity to some 80,000 locations nationwide, the telecom giant said in a prepared statement.

Wayport has been managing the Wi-Fi hot spots operated by AT&T.

AT&T is doubling down on Wi-Fi as ever more consumers turn to smart phones for connectivity, the statement said. AT&T provides the network for Apple Inc.'s iPhone, which has seen astronomical sales.

AT&T not only inherits Wayport's customer list, which includes Starbucks Corp., McDonald's Corp. and Marriott International Inc., but will take on all of Wayport's employees.

"AT&T controls the whole network, and gets the brawn and the brains of this company, plus their customer base," said Scale's Mitchell.

She said that, as the current economic climate worsens, large acquirers only have an eye for start-ups that have carved out a niche for themselves.

"People are not buying little tech start-ups anymore, not in this environment," Mitchell said. "A [start-up] has to be big enough to be important to the acquirer."

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